CYCLING THROUGH THE MARKET

Time cycles are a special study all by themselves, and researchers in the field list hundreds of cycles of every description.

When market analysts attempt to forecast the approximate time of a turning point they often use some type of time cycle. A variety of methods are popular, but only when supported by corroborative evidence are they very useful.

Some methods equate time and movement in predicting when the next peak or trough should be expected. The number of points up or down is used with a formula to calculate the number of days to the next turning point.

For some indicators, the length of time they decline often seems to build support for an approximately equivalent rally. There can be extensions, but they also are supposed to correspond to the pattern.

Another method is to use Fibonacci ratios to measure the distance between peaks and troughs. The Fibonacci series is one in which any two numbers in the progression add up to the next number: 1,2,3,5,8,13,21, etc. As the series extends, the ratio of any number to the number below it is always 1.6. For example, the distance between two peaks times the ratio is supposed to be the distance to the next peak.

When applied in a vacuum, these methods frequently err. Yet there is no doubt that reasonably consistent cycles do exist in nature -- the orbit of the planets, the seasons, the tides, or sunspots all remind us that our lives are run by cycles.

One very simple time cycle worth watching in the stock market is the 18- week cycle of market troughs marked by the dots in the accompanying chart. The cycle may vary several weeks either way, but over long periods it averages about 18 weeks between significant low points in the market.

Three of these cycles amount to a more important 54 week cycle, and 12 of them amount to the major 4.2-year cycle. The current cycle suggests that a downturn in the market is due around late April or early May. There should be a bounce from the next 18-week low around late May or early June.

However, all three cycles (18, 54, 216 weeks) are due to come together at a low point around September or October. From a cycle standpoint, it looks as if the May to October period may be a dangerous one for investors.